I think the nursery is completely stuffed unless I find an expert tax advisor

[Katymac]

I had a phone call this morning from the people who own the barn

Their accountant has pulled up the problem that the increased value of the barn will be subject to inheritance tax & theywon't be able to afford it

So this may stop them leasing me the barn

I need a tax advisor asap as I need to solve this problem & present them with a solution

I feel so gutted and am sitting here weeping at the computer & then feeling so guilty as it's only a bloody business & nobody died or anything

who is the "they" in they won't be able to afford it?

Their children (2 families - so a fair few children)

The barn is family owned so inheritance tax will be an issue

The family negociating are older

How much is the increased value?

IHT per se is a bit of a red herring. In any event they would have been liable to an increased capital gain (as is anyone who leases out property). The increase in value is part of the economic reward (together with the rent), and they should have expected to have been taxed at some point.

If they are particualrly worried about IHT then there are two options on this, depending on how they want to play it: -
a) they can almost certainly get some tax planning to mitigate this.
b) they can see how much a life insurance policy would be for the IHT bill (so 40% of the increase in value), and then this insurance policy can be used to cover the tax.

Personally I would look at the latter and argue that this cost should come out of your rent. I think that they ar trying to have their cake and eat it unless you have managed to negotiate a below-commercial terms rent.

but surely the increased value of the barn will negate the IHT implications

are the parents still alive?
Could they not gift the barn to the children as a PET (potentially exempt trust) and then if one of them survives 7 years is exempt from IHT

Currently it is an unused barn

I will be improving it and paying a small rent (after 3 yrs)

It has very little value at the moment - basically unsued farm buildings without planning permission are virtually worthless

but presumably it does have pp or you would not be able to make it inot a nursery??

Message withdrawn

Hang on
I am thinking that they don't understand how IHT works.

I mean what they are saying is like saying "I won't accept a payrise because it will take me into a higher tax bracket"

They only pay IHT on anything over the threshold, it won't make the whole of the amount subject to IHT, the nil rate band remains.

No - I am applying for PP next week

I have paid for drawings and £2.5K for highways approval

So far I about £5k down - there will come a point at which I can't afford to spend any more money on it

However, I am unlikely to get a chance to do it elsewhere as I can't afford to buy a building or even a lease commercially

I will be spending about 150K on it and it will be worth aboout £350/400K when we are finished

So they are under IHT atm but wowuld have to pay it on the whole amount - but they don't have 40% of that amount & they can't sell it cos they have leased it to me (can they?)

I'm not sure a tennant would stop them from selling. I've had a property I was renting sold on, and I jsut carried on paying rent to the new owner. I guess they could have served me notice if they wanted to as well.
I think you need to get a solicitor and get some sort of contract drawn up. You are spending a fortune on someone else's property and have no guarantees at the moment. I hope you get it sorted.

Well it depends on the terms of your lease! It may have break clauses where either party can terminate, they may for eg be invoked by death of the owner. What does it say? How long is it? It's a lot of money to spend if you can be hoofed out at a moment's notice!

Once PP has been granted we are going to do the lease - it will be for 25 yrs

I feel so crap atm - like someone is out to get me

Yes but what will the terms be?

They can sell it - flat freeholds are sold all the time. It's a commercial property so would be an investment for the purchaser. If it has a very low value, can you afford to buy it outright. I don't really understand why you are paying a load of money to improve somebody else's property anyway!

Well we have agreed some

25 yrs
No rent for 3 yrs
rent = 10% profit
If the lease is terminated before the end they have to pay me a proportion of the money I spent

But they are people we know so I trust them - But I am so upset

Oh god
Don't trust them please

I know you know them and they are probably terribly nice etc but where probate is involved fur can fly so easily and good intentions go down the pan

Get a really watertight contract drawn up, treat it as if you didn't trust them within an inch of your life, it is the only way to do it

I know

I'm a pratt

But I need to sort it out now

Ok do these sound like options

1. I own the improvements for the length of the lease and ownership only passes to them at the end of the lease. Therefore they do not own the improved barn?

2. they deed the property in trust for 25 years to the children?

Which sounds better?

And can anyone reccomend a good conveyancing solicitor?

I don't think that 1 is possible in law (because if they sell the barn then they are selling the all-singing all-dancing barn), or if it is then you will run into a tax problem of your own for some of the improvements (you won't get capital allowances on items that become fixtures).

The issue with 2 is again they will still own the reversionary interest which is effectively the longterm capital value. What they will be transferring is the rental income over the next 25 years - is this really what they want to do?

I think that you have to challenge this increase in value. If you have a 25 year lease on the building then I cannot believe that it really would have such a high market value? Isn't the value on the leasehold itself rather than in terms of the property? ANd how do you value the 25year rent given that it could be very variable?

They own the barn - I own the improvements

Erm - Oh hell I'm confused again

Let me put it another way - could you sell the improvements to someone else? If not then you don't really own them.

But I could sell the lease?